Oil giant thirsty for China

The oil giant has turned its attentions to China Aviation Oil (Singapore), the state-owned jet fuel trader that lost more than US$550 million trading oil derivatives last year and is currently trying to work its way through a US$275 million restructuring plan.

BP is already owed US$40 million by CAO for fuel supplies and can expect to receive 54% of that through the restructuring plan but, given the company's lofty China ambitions, swapping debts for shares probably made more sense. This strategy could see BP and Temasek, the Singapore government's investment arm, inject US$130 million into CAO.

However, CAO's fortunes may ultimately hinge on whether the government decides to end the company's near-monopoly on jet fuel imports by acting on airline operators? calls for deregulation of the market.

Despite Lord Browne's claims that BP is looking to expand its involvement with Sinopec, the Chinese oil producer was quick to scotch claims that its British counterpart would be increasing its stake in China's largest refinery to 30%. It was reported that BP would be allowed to add to its 9.41% share of Sinopec Zhenhai Re.ning & Chemical in return for supporting Sinopec's plans to privatize the refinery.

The Chinese oil producer is to pay shareholders US$990 million for the 28.7% of the refinery in public hands as part of plans to streamline its business structure and improve corporate profits. PetroChina has adopted similar measures, proposing to spend at least US$760 million to buy out minority stakes in its three listed units – Jilin Chemical Industrial Co Ltd, Jinzhou Petrochemical Co Ltd and Liaohe Jinma Oilfield Co Ltd.

Meanwhile, the oil industry was reassured by reports that China's growth in crude oil consumption will slow to about 6% this year, down from 19% in 2004. This means Chinese oil demand is on course to account for 16% of global consumption, versus 30% last year. Experts said the 2004 demand level, seen as being partly responsible for rising oil prices, was "an aberration," exacerbated by conditions that are on the wane. They pointed to easing power shortages, rising domestic crude production, declining auto sales due to higher gas prices and government measures to slow production in oil-hungry industries as being key to China's more subdued demand in 2005.

Nevertheless, last month Chinese officials suggested there may be a turnaround on the earlier policy of not importing oil to help fill the country's strategic petroleum reserve, suggesting that fears remain over restricted oil supplies.

China has already begun construction on its 50 planned strategic oil storage tanks which, when fully completed in 2008, will have a collective capacity of 31.5 million barrels.

CNPC's PetroKazakh takeover ok'd
Canadian court approved China National Petroleum Corp's US$4.2 billion takeover bid for PetroKazakhstan, ending attempts by Lukoil, Russia's largest private energy company, to block the deal. The takeover of the Canadian company, all of whose operations are in the Central Asian republic of Kazakhstan, represents China's largest ever overseas acquisition. It will give China an additional 518 million barrels of proven and probable reserves, as well as a foothold in Central Asia, one of the last great untapped oil regions in the world.

CNOOC may reduce state holdings: FT
State-controlled oil producer CNOOC Ltd could "very likely" ask Beijing to reduce its stake in the company thereby removing a political obstacle to overseas acquisitions, the company's chief executive Fu Chengyu told the Financial Times. Fu said reducing the government's holding would help counter the perception that CNOOC acts in accordance with Beijing's energy policy rather than in its best commercial interest. More than 70% of the shares in CNOOC, which is listed overseas in New York and Hong Kong, are held by its wholly state-owned parent company. Fu floated the idea of allowing the government to retain a "golden share" which would allow it to override takeovers of strategically important assets.

Sinopec plans to drill in Sudan
China Petrochemical, or Sinopec, will join its competitor China National Petroleum Corp in a US$600 million acquisition of drilling rights in Sudan, reported The Wall Street Journal. The Sudanese government will seek a stake in the venture, from which 20,000 barrels of crude a day is expected. Sinopec quit Sudan in 2000 before one of its unit sought an IPO that year, selling the whole of its 80% stake in a small venture to CNPC.

Venezuela signs China oil deal
Venezuela's state oil company, Petroleos de Venezuela, signed a one-year contract with China National Petroleum Corp to supply 100,000 barrels of crude and 60,000 barrels of fuel oil a day. In 2005, Venezuela sold 70,000 barrels a day of mostly fuel oil to China, five times what it sold in 2004. Venezuela, the world's fifth-largest oil exporter, plans to expand its fleet of tankers to sell more to Asia.

Plans for power grid listing
China is preparing a multi-billion dollar listing of China Southern Power Grid Corporation, its state-run distribution arm in the south, to help fund a planned US$2.5 trillion, 30-year power expansion program for the region, the Financial Times reported. Bankers said they had been approached by Beijing to help restructure the finances and operations ahead of the possible listing of 25% of the grid, valued at about US$24.7 billion. The southern grid's 15,000 kilometer network includes the manufacturing hub Guangdong, where power demand rose by more than 80% last year.

US to share reactor technology
The United States reaffirmed its commitment to transferring nuclear reactor technologies to China as part of the country's efforts to alleviate growing energy shortages. Linton Brooks, head of the US National Nuclear Security Administration made the commitment while in Beijing for week-long security demonstrations featuring technology for tracking radioactive material and export controls that is intended to prevent the theft of uranium or plutonium. China plans to build 31 nuclear power plants by 2020 and foreign firms are already competing to secure construction contracts.

China chases Australia's uranium
The Australian Foreign Minister confirmed that China has asked for permission to conduct uranium exploration and mining in the country to fuel its growing nuclear power industry. Alexander Downer said the government had no objections to the plan, provided Beijing first signed a nuclear safeguard agreement to confirm the uranium would not be put to military use. Australia has about 40% of the world's known uranium reserves but has only three operating uranium mines and no nuclear power industry of its own. In 2004, it exported 9,648 tons of uranium.

Renewable energy gets US$180b
China announced plans to spend US$180 billion on renewable energy over 15 years in a bid to boost the proportion of the country's renewable power sources from 7% to 15%. "Renewable energy, including solar, wind power and hydropower, will contribute to better energy security in China," said Zhang Guobao, vice minister of the National Development and Reform Commission. EU Environment Commissioner Stavros Dimas, who attended his press conference, praised the initiative.

Coal exports expected to fall 31%
Coal exports are expected to drop 31% this year because foreign purchasers are delaying orders in hopes of a further fall in spot prices. A cut in coal export tax rebates contributed to the decline in the first nine months.

INSURANCE AND REAL ESTATE NOTES

Insurance license granted to Lloyd's
Lloyd's of London, the world's biggest insurance underwriting market, was granted a license to set up its first operation in China in an agreement signed in front of British Prime Minister Tony Blair and Chinese President Hu Jintao in London. The deal gives Lloyd's access to one of the world's fastest-growing insurance markets. China has been warm to Lloyd's, but its status as market rather than a company resulted in protracted negotiations that have run for the past seven years. Under the agreement, Lloyd's can operate a subsidiary in China offering reinsurance in local currency. It will join the world's two largest reinsurance companies, Swiss Re and Munich Re, both of which recently received licenses to operate in China.

China Life to invest in IPO
Calling it a "special approval," China's insurance regulator said it would allow China Life Insurance Co to buy shares in China Construction Bank's recent initial public offering, The Wall Street Journal reported, quoting Sun Jianyong, director of the China Insurance Regulatory Commission's fund. The IPO was a special case, Sun said, because the insurer has not been formally approved to invest overseas. China Life Insurance bought CCB's shares with its foreign exchange funds, though Sun declined to specify the number of shares bought and the price paid for them.

Tai Ping Life Insurance to issue debt
Tai Ping Life Insurance Co Ltd, a subsidiary of China Insurance International Holdings Co Ltd, will issue US$185.4 million worth of debt to fund the expansion of its China life insurance operations, Reuters reported, citing a China Insurance statement. The Agricultural Bank of China agreed to buy the debt instrument, which carries a fixed interest rate of 4.45% per year with a contract for eight years.

CITIC to buy stake in Allianz JV
CITIC Trust and Investment, a government-backed investment arm, will buy Dazhong Insurance's 49% stake in life insurance joint venture Allianz Dazhong Insurance. Meanwhile, Allianz, Europe's biggest insurer, will continue to hold the other 51%, The Standard of Hong Kong reported. Dazhong said it was disposing of the stake in Allianz Dazhong, which has been losing money since its 1998 inception, to focus on property and casualty insurance.

Warburg Pincus ups property stake
Warburg Pincus, a US private equity firm, will invest US$31 million in mainland property developed by Legend Holdings, the parent of computer maker Lenovo, The Standard of Hong Kong reported. Legend's property arm, Raycom Real Estate Development, said Warburg Pincus will develop commercial and residential projects, starting with the Olive City housing project in Beijing. Warburg Pincus also holds a stake in Guangzhou R&F Properties.

No sale for Shanghai's pricy condos
Not one condominium has been sold in Shanghai's most expensive housing project, reported state media, signaling that the city's luxury property boom is no more. Costing US$13,580 per sq m, condos in the Tomson Riviera project have set a record as the city's most expensive fiats. Of the "first 74 condos, the cheapest is a 434-sq m apartment priced at US$4.68 million while the most expensive sells for US$21 million.

Shui On Land raises US$375m
As Beijing seeks to slow real estate development in Chinese cities by curbing access to bank financing, developers are looking to other means to finance their projects. Shui On Land Ltd, the Chinese real-estate company that developed Shanghai's trendy Xintiandi are, said it raised US$375 million in corporate bonds to fund existing projects, The Wall Street Journal reported. Guangzhou's Hopson Development Holdings Ltd recently pocketed US$125.4 million by selling a 16.7% equity stake to Tiger Global Management and Temasek Holdings, while Guangzhou R&F Properties sold a big chunk of its stock offering to private-equity firm Warburg Pincus.

AUTO NOTES

Acute auto oversupply looms
China will produce twice the vehicles it needs by 2010 if the current investment frenzy in the automotive sector goes unchecked, Chen Bin, head of the National Development and Reform Commission's industry department told China Securities Journal. Vehicle production in China is expected to hit 20 million units in 2010, far outpacing expected sales of 9 million units, he said. Annual capacity, now at 8 million units, has already exceeded anticipated sales of 5.5 million units this year.

Car trade surplus hits new high
China's trade surplus in cars and components hit a record US$3.57 billion in the first eight months of the year, despite the removal of tariffs on cars imported into the country in accordance with WTO rules, the South China Morning Post reported. According to figures issued by the China Auto Industry Association, exports for the period were worth US$12.62 billion, a rise of 56% on the same period last year, while imports fell 17% to US$9.05 billion. The association expects vehicle imports for the year to be 130,000 units, down 27% on 2004, in what would be the country's first ever year-on-year fall in imports of the product.

Production begins at new Ford site
Ford, the second-largest US carmaker, began production at a new site in Chongqing that can assemble 150,000 vehicles a year.

JV targets after-sales service
US Cornell Capital Partners and Beijing Jinche Yingang Auto Maintenance Center will establish a Beijing joint venture in automotive after-sales service called Beijing Sino-US Jinche Yingang Auto Tech Services Ltd (Sino-US AutoMart). "The after-sales market in China is messy, but it's a big market with approximately 80 million automobiles in China," said Zhang Xiaoyu, chairman of the Society of Automotive Engineers of China.

GM boss calls for service growth
General Motors president and CEO Rick Wagoner has called on China, and Shanghai in particular, to improve its underdeveloped service sector.

Shanghai Automotive profits fall
Shanghai Automotive Co announced a drop in third-quarter profits of 9.1%, attributing the dip to increasing competition, the rising cost of raw materials and the falling price of auto parts, The Wall Street Journal reported. Net profit fell from US$46.38 million in 2004 to US$42.2 million this year. Profits hit their lowest ebb in the first half of 2005, falling 67.6% compared to the same period in 2004.

INSURANCE AND REAL ESTATE NOTES

Delta eyes China
In a bid to tap into China's fast-growing travel market, US-based Delta Air Lines said it has applied to fly non-stop routes between Atlanta and China, possibly starting in 2007, The Wall Street Journal reported, citing Delta vice president Jorge Fernandez. Delta also announced it opened a representative office in Beijing to sell tickets for its partners, which include China Southern Airlines and Korea Airlines. This comes as Beijing agreed to open another non-stop route to a US airline in 2008, though Delta is lobbying to access the market a year earlier, in 2007.

Cross-Strait flight ban to be lifted
Taiwan plans to relax its cross-Strait charter flight ban to China in a one-off scheme, reported the Financial Times. The relaxation is scheduled to take place during the Chinese Lunar New Year in January and is expected to help ease negotiations with China in liberalizing economic exchanges. A Taiwan official said his government was ready to open charter flights to all Taiwan passport holders, rather than just Taiwanese with business on the Mainland, and allow landing at more mainland airports.

Air China, Rolls-Royce in US$800m deal
President Hu Jintao and British Prime Minister Tony Blair in London witnessed the signing of commercial aviation contracts worth US$800 million between Air China and Rolls-Royce. Under the agreement, Rolls-Royce will supply the Chinese carrier with Trent 700 engines for a fleet of 20 Air-bus A330-200 wide-body jets.

TNT seals COSCO deal
Dutch mail group TNT has agreed to form a joint venture in logistics with COSCO, China's largest shipping group, the companies said in a joint statement. The 50-50 venture is to have about 1,000 employees and be operational by 2006. The partnership will enable state-owned COSCO to penetrate further into the Asia-Pacific market and enable TNT to expand its presence in China, the companies said. TNT Chief Executive Peter Bakker told Reuters that the company is also looking to buy a freight-management firm in China.

Airbus, AVIC in US$500m deal
China Aviation Industry Corporation 1 (AVIC-1) signed a US$500-million deal to build wing boxes for Airbus, the European aircraft maker, in an extension of a cooperation agreement signed earlier this year to start A320 wing assembly in China.

Air carrier to double fleet size
Shanghai Airlines, the Mainland's fifth-biggest carrier, plans to purchase or charter 50 aircraft to meet market demand over the next five years, The Standard of Hong Kong reported. Half the order is believed to have been placed with Boeing at a cost of US$5 billion over five years. The expansion will bring Shanghai Airlines' fleet to 93 aircraft by 2010. The company is also looking into the introduction of direct flights between Shanghai and Hong Kong, chairman Zhou Chi said.

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